Case studies

Oliver

I hung on to my old pension deal to secure a lifetime income for me and my wife.

Oliver and his wife are both 66 and rent their home. He has final salary pension income of £15,000 per year and a defined contribution pension pot of £30,000, with a guaranteed annuity option. His wife has final salary pension income of £9,000 a year and they have savings of £50,000. They both receive their full State Pension.

What Oliver wants

I want to use my pension pot to secure a lifetime income, particularly as my annuity has a guaranteed rate.

Oliver's idea

I took out this scheme a long time ago. It’s good for me as it will provide a guaranteed income for life. This will give us a welcome supplement for our retirement.

What Oliver does

Oliver takes one quarter of his pension pot as a tax-free cash sum of £7,500 and uses the other £22,500 to purchase a joint life lifetime annuity

Oliver has a guaranteed annuity rate. Thanks to this, a 7.5% annuity rate is applied to his pension pot meaning Oliver receives an annual income of £22,500 x 7.5% = £1,687.50, taxed at 20%. Without it, he would get a reduced annuity rate of around 4.4%

If Oliver dies before his wife, the annuity income will be paid to her for the rest of her life as he chose to include the 100% dependant’s income option

What Oliver gets

Tax-free cash £7,500

Lifetime annuity £1,687.50a year, subject to tax

See how we worked this out

State Pension age65

State Pension£8,767

Pension pot£30,000

Other income£15,000 a year

Other savings£50,000

Rental cost£8,000

Oliver's calculation

Personal allowance (0% tax)

Earnings from £0 to £12,500

Basic rate (20% tax)

Earnings from £12,501 to £50,000

State Pension

£8,767 a year

Final salary pension

£15,000 a year

Total income (subject to tax)

£23,767 a year

Lifetime annuity (subject to 20% tax)

£1,687.50 a year

Important things to consider

Oliver has opted for a fixed income from his lifetime annuity, which won’t increase in value. As a result, the effect of inflation will reduce the buying power of the income over time

By exercising his guaranteed annuity option, he received a higher annuity rate than is typically available in the market place

Different defined contribution schemes will offer different rates under their guaranteed annuity options

Better deals may be available so it’s important to shop around

If Oliver had any medical conditions or lifestyle health risks he could have received a higher income

By purchasing a joint life annuity, he's made sure his wife will begin to receive the payments if he dies before her

If Oliver dies before age 75, his wife will begin to receive the annuity income, tax-free

On death of both Oliver and his wife, no further payments will be made

Tax payable on the income will be taken off before it's paid out

Buying a lifetime annuity is a once and for all decision. Once an annuity is set up and the cancellation period has expired, it can't be changed

This example is based on current law and tax rates. These may change in the future and income tax will depend on individual circumstances

If you live in Scotland or Wales you may have a different income tax rate or band

The State Pension amount shown here is the current maximum and is only an example. The amount you get depends on your National Insurance contributions’ record and your individual circumstances. You can get a State Pension forecast by visiting GOV.UK View - Check your State Pension